Robusta shortfall drives coffee market to 21-month high 

The International Coffee Organisation reported that coffee prices rose significantly in October, with support coming from continuing concerns over Robusta supply. The monthly average of the ICO composite indicator hit a 21-month high of 142.68 US cents per pound, with the Robusta indicator at its highest level in two years. The market has also been buoyed by speculation over the next 2017-18 Brazilian crop, although it is too early to draw any conclusions at this point. Finally, total exports ended 2015-16 down by 0.7%, with an increase in Arabica outweighed by lower shipments of Robusta

Coffee prices continued their recent rally in October, with the monthly average of the ICO composite indicator reaching its highest monthly level since January 2015. The daily price increased consistently over the course of the month, up from 136.17 cents to 150; this is the highest monthly increase since March 2016. The market has been largely driven by the ongoing concerns over Robusta supply, as well as growing speculation over the size of the next 2017-18 Brazilian crop, as Arabica will be going into an off year in its biennial cycle. The Brazilian real has also been appreciating against the US dollar, reaching its strongest level for over a year, which has helped to support the market.

In terms of the group indicators, the strongest performance was recorded in Robustas, which increased by 7% compared with last month. This is the eighth consecutive monthly increase, with Robusta prices now up by nearly 40% since the beginning of the calendar year, averaging above USD $1/lb for the first time since November 2014. The three Arabica groups also increased, by between 1.5 and 2.2%. The arbitrage between Arabica and Robusta therefore narrowed compared with last month, but remains wider than a year ago.

Total exports in September came to 9 million bags, 1.1% higher than last year. Shipments from Brazil were down by 21.5% to 2.5 million bags, with exports of green Robusta from Brazil down by over 90%. Brazil’s Robusta production is primarily used to supply the domestic soluble industry, but a lack of rainfall and reduced output have squeezed the market, with local prices of Robusta briefly surpassing Arabica. In Vietnam, on the other hand, exports increased in September, estimated up by 61.7% to 2 million bags, which would represent the highest September export volume on record.

This brings coffee year 2015-16 to an end, with exports for the year down by 0.7% to 111.8 million bags. This is the second consecutive year in which exports have declined, following the record volumes set in each of the four previous years.

Exports of the three Arabica groups all increased year on year, with shipments of Colombian Milds, Other Milds and Brazilian Naturals up by 1.1%, 5.5% and 2.6% respectively. Robusta exports were down by 6.9% to 40.8 million bags.

However, exports of green coffee by the largest Robusta producer, Vietnam, increased by 8.1% to 22.3 million bags, though this estimate covers only coffee that has been physically shipped, not coffee that has been customs cleared. This increase by Vietnam was outweighed by lower green Robusta exports from Indonesia, down by over 25% for the coffee year, and Brazil lower by over 72%.

Brazil’s green Arabica exports increased compared to last year by 2.4% to reach 29 million bags, slightly lower than the 2013-14 peak of 29.5 million. Higher shipments were also recorded by several other Arabica-producing countries, including Honduras (+2.4%), Guatemala (+4.2%), Ethiopia (+7.1%), Nicaragua (+7%) and India (+21%), while Colombia was mostly unchanged. The significant increase of 42.9% by Peru suggests that output is starting to recover from the coffee leaf rust outbreak that affected the last two crops, though green exports from Mexico are down by 3.9% as rust continues to be an issue.

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